Federal plan called threat to state banking laws

Wednesday, Oct. 8, 2003 | 9:35 a.m.

CARSON CITY -- Assembly Majority Leader Barbara Buckley said Tuesday that she opposes a proposed federal regulation that she says would prevent states from enforcing predatory lending laws against banks.

Buckley, D-Las Vegas, has joined with Consumers Union in opposing the regulation proposed by the Office of the Comptroller of the Currency.

Buckley said she has written to both President Bush and Nevada's congressional delegation expressing her opposition.

The proposed regulation published in the Federal Register (Docket 34-16) said that state laws on predatory lending practices are pre-empted by the federal government.

Comptroller John Hawke Jr. said in the proposed regulation: "Evidence that national banks are engaged in predatory lending practices is scant. Based on the dearth of such information ... from third parties, our consumer complaint database and our supervisory activities ... we have no reason to believe that national banks are engaged in such practices to any discernible degree."

The 2003 Legislature approved a bill introduced by Buckley that defines unfair lending practices of banks and financial institutions. She said Tuesday that a state law is needed because "the comptroller does not have the resources to pursue all the problems Nevada consumers encounter with national banks."

Although Congress passed the Home Owners Equity Protection Act in 1994, many abuses continued, Buckley said. That prompted the passage of the state law.

"The federal track record on some of these consumer protection issues does not provide a high level of confidence," Buckley said.

Scott Walshaw, who is retiring as director of the state Division of Financial Institutions, agreed.

"We're concerned about present state authority being pre-empted," he said.

Walshaw said Georgia adopted a predatory lending law, but the comptroller pre-empted that law, saying it was more strict than federal regulations.

Kevin Mukri, a spokesman for the comptroller, said the new regulation was only coincidental to the Georgia case. He said the regulation is to clarify the authority of the state and federal government in regulating banks.

The new Nevada law says it would be an unfair lending practice to require a borrower, as a condition of getting a loan, to provide insurance that exceeds the replacement value of the property in question. It also prohibits the lending institution financing any credit insurance, and it sets other standards as well.

The law also prohibits a bank or financial institution from making a home loan based solely upon the equity the borrower has in the property. It must determine also that the borrower has the ability to repay the home loan with income or other assets.

Buckley said people lose their homes when financial institutions follow these practices.

Violation of the law is a misdemeanor. The borrower can file a civil lawsuit and gain up to three times the amount of any actual damages.

The proposed federal regulation says national banks should not make loans when they lack a reasonable basis to believe that the borrower has the capacity to repay the loan. If the borrower can't make the payments, the bank is able to seize equity in the home.

Walshaw said there was concern that Nevada protection laws could be superseded. For example, he said, Nevada may want to limit interest charges or the number of bank branches.

The state doesn't want the federal government coming into Nevada and overruling those decisions, said Walshaw, who leaves his job at the end of the week after more than 20 years with the state.

Buckley argued that federal authorities have failed to adequately protect consumers, not only in predatory lending practices but also in identity thefts.